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Start-up Costs and Pecuniary Externalities as Barriers to Economic Development
Department of Economics, Stanford University.
Department of Economics, Northwestern University.
1993 (English)Report (Other academic)
Abstract [en]

One critical aspect of economic development is that productivity growth and a rising standard of living are realized through more roundabout methods of production and increasing specialization of intermediate inputs and producer services. We use an extended version of the Judd-Grossman-Helpman model of dynamic monopolistic competition to show that an economy that inherits a small range of specialized unputs can be trapped into a lower stage of development. The limited availability of specialized inputs forces the final goods producers to use a labor instensive technology, which in turns implies a small inducement to introduce new intermediate products. The start-up costs, which make the indtermediate goods producers subject to dynamic increasing returns, and pecuniary externalities that result from the factor substitution in the final goods sector, play essential roles in the model.

Place, publisher, year, edition, pages
Stockholm: IIES , 1993. , 42 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 533
Keyword [en]
differentiated intermediate outputs, the Hicks-Allen Complementary, increasing returns due to specialization, roundabout production, multiple steady states, multiple equilibria, development traps and take-offs, endogenous growth
National Category
URN: urn:nbn:se:su:diva-41853OAI: diva2:337989
Published in connection with a visit at the IIES.Available from: 2010-08-10 Created: 2010-08-10 Last updated: 2010-08-10

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